The Fines online service will be unavailable between 11.00pm on Saturday and 5.00pm on Sunday; other online services will be unavailable between 9.00am and 9.30pm on Sunday due to scheduled maintenance. We apologise for any inconvenience.

Background

This matter concerned the review of a decision of the Chief Commissioner of State Revenue (“Chief Commissioner”) to not exercise his discretion under s.79 of the Payroll Tax Act 2007 (“the Act”) to exclude Corrosion Control Engineering (NSW) (“the Taxpayer”) from a group with three other companies for the 2010 to 2013 financial years for the purposes of payroll tax. The other companies were Corrosion Control Engineering (VIC) Pty Ltd, Corrosion Control Engineering (QLD) Pty Ltd and Corrosion Control Engineering (WA) Pty Ltd.

The Taxpayer operates in New South Wales, Victoria, Queensland and Western Australia and is in the business of supplying products and cathodic protection services to other group members and to the public generally. The Chief Commissioner declined to exercise the discretion under s.79 of the Act to exclude the Taxpayer from the group. The Taxpayer objected to the decision on the basis that the Taxpayer’s business was carried on independently of, and in connection with, the carrying on of the business of the other group members. The objection was disallowed.

The Taxpayer applied to the Tribunal for a review of the disallowance of their objection. The Chief Commissioner submitted that it is the de-grouping decision and not the disallowance that the Tribunal is empowered to review.

Statutory Framework

Section 79(1) of the Act provides that the Chief Commissioner may determine that a person who would be a member of a group for taxation purposes is not a member of the group.

Section 79(2) of the Act provides that a de-grouping decision may only be made if the Chief Commissioner considers that a person’s business is carried on independently of, and is not connected with the carrying on of, a business carried on by any other member of that group.

Section 79(5) of the Act allows such a decision to be expressed to take effect on a date that is earlier than the date of the decision.

Decision

In order to make a determination pursuant to s.79(1), the Tribunal found that it must be satisfied as to the matters referred to in s.79(2).

The Tribunal found that the Taxpayer had not adduced evidence in support of a number of its submissions, namely:

whether Mr John Kalis was also appointed a managing director of any or all of the QLD, Victoria and WA companies in accordance with clause 13.4 and schedule 3 of the standard constitution,

if, at the time that any managing director was appointed, whether any conditions or other restrictions were placed upon the powers of that managing director, and

if any of the managing directors other than Mr Peter Kalis (who is the sole director of the Taxpayer) is not subject to control by the board of directors.

The Tribunal had regard to the factors for determining whether a business was part of a group, as set out in Conrad Linings Pty Ltd v Chief Commissioner of State Revenue, namely:

commonality of ownership,

intra-group loans,

same place of business,

intra-group provision of administrative services,

nature of the business.

In analysing these factors, the Tribunal noted the prevalence of intra-group loans and the use of common suppliers. The Tribunal also stressed the significance of all group companies utilising the same accounting, insurance and website services, sharing a registered office, OH&S manuals and sharing other services. Additionally, the involvement of Mr John Kalis as a director of each company and his high degree of involvement in the operation and finances of each company led the Tribunal to find that there was a significant degree of connection between the companies forming the Corrosion Control Engineering Group.

The Tribunal also preferred the Chief Commissioner’s construction of the relevant authorities and had regard to the binding authority of the NSW Supreme Court decision in Conrad Linings Pty Ltd v Chief Commissioner of State Revenue [2014] NSWSC 1020 over the non-binding authority of the Victorian Civil and Administrative Tribunal in GTS Industries Pty Ltd v Chief Commissioner of State Revenue [2004] VCAT 21, on which the Taxpayer sought to rely. The Tribunal also had regard to the principles enunciated in Lombard Farms Pty Ltd v Chief Commissioner of State Revenue [2013] NSWADTAP 42 and Seovic Engineering Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCA 242.

At paragraph [221], the Tribunal found as follows:

“Having regard to the above findings on the material before me, and having regard to the nature and degree of ownership and control of the businesses, the nature of the businesses and the other matters which I have referred to above as being relevant, I am not satisfied that throughout each Tax Year the business carried on by the Taxpayer was carried on independently of the business carried on by each of the other CCE company, and that there was no relevant connection between the carrying on of those businesses.”

The Tribunal held that the correct and preferable decision is that the decision of the Chief Commissioner under review is confirmed.